Side-Stepping the Co-Employment Trap 2: Compensation and Taxes

Contracting offers employers the flexibility they need in this economy to easily adjust their workforce to their business needs. But some employers are gun-shy about utilizing contractors out of fear of co-employment issues. In this series, we will examine the co-employment risk and how your client companies can reduce that risk when utilizing contractors.

Perhaps one of the most important aspects of the employer/employee relationship is how the worker is paid for his/her services. So it stands to reason that one of the biggest ways a company can avoid co-employment when utilizing contractors is to have zero involvement in the payment of those contractors.

The Employer of Record (i.e., the recruiter or the contracting back-office the recruiter is utilizing) should pay the contractors on a regular basis. They should withhold the employee share of taxes from that pay and pay the employer share of payroll taxes. The Employer of Record is also responsible for compliance with any laws and regulations regarding the payment of employees.

Top Echelon Contracting, for example, pays contractors on a weekly basis in accordance with federal and state wage and hour laws. We are responsible for withholding all applicable payroll taxes from the employee's paycheck and pay the employer share of taxes, too.

The only involvement the client company should have is confirming the number of hours the contractor worked and paying the invoice that is sent to them by the recruiter or back-office service. Further, the client company should not discuss pay rates or increases, bonuses, or incentives with contractors. These issues should be negotiated through the recruiter who placed the contractor.

This article is for informational purposes only and should not be considered legal advice.